Changes in technology is regularly a top issue for management accountants when asked. Of course in recent years, the pace of technology change has been so rapid compared to previous. How can management accountants deal with such change? An article from the CGMA provides some useful tips.
Over the last year or two I have done some research on changes to management accounting practices over a century or so at the Guinness cooperage. This work is now available as a an article in Management Accounting Research see here
As part of my research work, I like to study how organisations and their management accounting practices change over time. And, I particularly like to frame my research as a story of change. I like the stories of how things change (or don’t) as these stories quite often get to the bottom of things quickly, or summarise everything that happened in a brief and concise way. Of course, when I am in research mode, there are often many thoughts flying around in my head. Recently, I was doing some work on how technology has changed the role of management accountants. I put on an old CD I had from Dire Straits (Love over Gold, 1982) and as I was listening to the first track, I realised, hang on this is a story of change. The song is Telegraph Road, here are the lyrics:
Telegraph Road lyrics
Songwriters: Knopfler, M;
Telegraph Road is nowadays US Route 24 in Michigan. The song tells the story of how what was once a dirt track, became a telegraph line route, and ultimately a highway with all the associated development. When I actually realised the story this song tells, I started to think, okay it was only written 30 years ago, but look how much has changed in even that short time. I thing it’s time Mark Knopfler wrote a new version! By the way, if you don’t know the song, it’s about 15 mins long and has some really cool guitar pieces.
The fact that many businesses capture vast amounts if data is not brand new (see this article from The Economist in 2010), but the focus of collecting and analysing what marketing people call big data is now beginning to come firmly under the radar of management accountants too. Before looking briefly at what big data means, we need to define. First, back to basics. Data is simply facts, numbers, statistics etc. For example, 175,80,40 are just numbers. They are in fact my approximate height, weight and age. This is information, as you now know some facts about something i.e. me. The problem with big data is getting the information value from it.
Here is where a management accountant can help – assuming of course (s)he has some technical proficiency. Here is an extract from an item on CNET back in May of this year (bold is added by me):
Put simply, the analysis that big science brings to the table makes big data relevant. I envision big science combining with big data to create big opportunities in three significant ways: real-time relevant content, data visualization, and predictive analytics.
When I read the above, I immediately thought isn’t this what management accountants have been doing for years now? If you remember the basis definition of what management accounting is, you’ll remember it is about providing decision-relevant information to managers. This includes real-time data, forecasts and predictions and is often aggregated (or visualised). Personally, I believe management accountants, IT people and marketeers (who might be responsible for collecting all this big data) can all work together to make big data work as information. In particular, management accountants are well placed to assist as they know what information drives a business.
Bromwich & Bhimani wrote a interesting short book in 2010 called “Management Accounting – retrospect and prospect” (see cimapublishing.com). In the book, they give a number of examples from modern business that makes us think about management accounting techniques. For example, what exactly does a company like Facebook or LinkedIn actually do? Do they offer products, services or what? Changing technologies, business markets and new ways of making/delivering products often causes changes to management accounting. For example recently I read that amazon.com now sells more e-books than paper books. Taking this e-book example, it is easy to visualise a shift in product costs. Arguably, an e-book has almost no variable costs. Instead the vast majority of costs are probably fixed – costs of running a data centre for example. This new way of doing business changes the information management accountants need and how that same information is collated and analysed. I have no idea what publishers or distributors like amazon.com do in their management accounting functions, but it is not too hard to think about how basic techniques like breakeven (CVP) analysis would change due to the changing cost structure.